Filed by Terex Corporation
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: CMI Corporation
Commission File No. 1-5951
TEREX CORPORATION
CONFERENCE CALL- 6/28/01
MOD: This call is being recorded. If you do have any
objections, you may now disconnect at this time. I
would now like to introduce you to our host for today,
Mr. Ronald DeFeo. Sir, you may begin when ready.
R. DEFEO: Thank you very much, and good morning to everyone
on the call, here. A couple of housekeeping details,
first. This call, a replay will be available starting
Friday, June 29, at 10:00 a.m. Eastern time, and can be
accessed until Friday, July 6, 2001, until 6:00 p.m.
Eastern standard time, daylight savings time, rather.
To access the replay, please call 888-482-2241, or for
international calls, 402-998-1367. The password for the
call will be TEX or 839. A simultaneous, listen only
mode Webcast for this call is available at our Website,
www.terex.com, under the Investor Relations section.
With me this morning, on the call, is Joe Apuzzo, our
Chief Financial Officer; Brian Henry, Vice President of
Mergers and Acquisitions; and Jack Lascar, VP of
Investor Relations in Corporate Communications; and
Ernie Verebelyi, Group President of Terex Mining and
Americas.
We're making several announcements today, which we feel
reflect the best assessment of current operating
conditions, plus several important steps to build a
more efficient company, with a substantially broader
product range. The timing of these announcements
reflect the convergence of activities that have been
underway in our company for some time. Also, reflecting
the reality of the calendar, which says that the second
quarter is almost over, and given the announcements, we
felt it appropriate to give commentary on the second
quarter, as well. Consequently, I'd like to broadly
discuss three topics. First, current operations for
Terex as a whole. Second, planned restructuring and
factory closures for the balance of 2001. And, third,
the acquisition of CMI, with both financial and
operational comments.
Let me turn to current operating performance at Terex.
The second quarter operating performance remains solid,
despite significant revenue challenges. We expect to be
about 10 to 20 percent better than the first quarter of
2001, which results in an earnings per share in the
range of 50 to 55 cents per share, from continuing
operations. This is obviously below the current first
call estimates of the company, in the range of 65 cents
per share. Revenue is expected to be 20 to 25 percent
below the comparable year ago period. Of particular
relevance is the North American softness, where we are
seeing our infrastructure business, in particular,
Cedarapids asphalt and crushing businesses, plus some
ongoing year over year weakness from the Terex truck
revenue. There continues to be some difficulty
forecasting the impact of the highway bill, and how it
relates to both equipment purchases and the actual
spending of the highway funds, by state. Projects are
not really being cancelled, only dragged out by
matching fund issues, engineering, and permitting
challenges, and to a degree, some energy related higher
cost of energy, causing some review of these projects.
And, there clearly is a psychology of uncertainty among
customers. And, I think that's impacting buying
decisions for equipment.
Our mining business, in particular, our Unit Rig mining
truck business, has struggled with revenue in the
second quarter. We had some positive impact from coal
price increases in our O&K shovel business. But, we
have yet to realize any significant up-tick at Unit
Rig. There is a substantial amount of quoting activity,
but not yet enough visibility. This could change any
day, however, and we are expecting a stronger second
half from this business. It is also important to note
that we expect our margins will continue to reflect the
variable cost structure of our company. Obviously, they
will be somewhat lower than last year. But, with
revenue shortfalls we are seeing, our operating margins
have held up much better than other vertically
integrated, or then vertically integrated, capital
goods companies.
We continue to get solid performances from several of
our businesses, particularly in this environment. Our
Powerscreen companies are generally doing well, and
several of our lifting businesses continue to perform
and grow market share. The built in revenue and
geographic diversity of Terex, plus our low cost and
outsourcing strategies, seem to be working. For the
full year of 2001, we expect to have a second half
similar to the first. To accomplish this, we will have
to see some strengthening in our typically slower
second half revenue. While hard to predict, we think
this can come from mining and some modest improvements
in other areas.
We are also announcing, today, the closure of four
factories by year-end. This is a continuation of the
Terex improvement plan and reorganization we instituted
a few months back. While we won't be specific with the
factories on this call, there will be two factories in
Europe and two in North America. We expect no revenue
change as a result of this manufacturing consolidation.
This represents better space utilization and overhead
reductions. We expect approximately 170 job reductions.
As noted, we expect savings in the $10 to $15 million
pre-tax range, and a charge of $15 to $20 million
before the end of this year. These were noted in the
press release. These decisions obviously have a rapid
payback, and we believe, will strengthen our
organization. We expect further elements of the Terex
improvement plan to be announced as the year continues.
We are making organizational changes in both North
America and Europe to deepen our franchise and take
advantage of strong market positions in both our
lifting and earthmoving products.
In summary, while earnings visibility and, more
precisely, revenue visibility, is challenging at this
point in time, we feel we are weathering current
operating conditions reasonably well, while
simultaneously strengthening our franchise and
efficiencies levels. We are cutting costs, but these
are costs that didn't get bloated in the last
expansion, but rather costs that have become possible
to reduce, mainly because of prudent and strategic
acquisitions being integrated with the balance of
Terex.
Now, let me turn to CMI. As announced, Terex has signed
a definitive merger agreement to acquire CMI
Corporation, a New York Stock Exchange listed company.
The agreement provides for an exchange of all
outstanding shares of CMI, at a ratio of .16 shares of
Terex common stock for each share of CMI. This is
subject to a downward adjustment in the event that
consolidated net debt of CMI exceeds $75.25 million.
The maximum number of shares that Terex can issue will
be 3.5 million. The transaction is expected to close
during the third quarter of 2001.
CMI is the leading manufacturer of automated machines
for construction and maintenance of highways, parking
lots, bridges, with revenues in excess of $225 million
in the year 2000. Specific products include asphalt
plants, concrete plants, road profiling and reclaiming
equipment, landfill compactors and grinders. CMI was
founded in the mid `60s by the current Chairman and
CEO, Bill Swisher. The company has a long history of
product innovation and markets mainly via a direct
sales force. And, I think it would be accurate to say,
many of the roads built over the past several decades,
have been done with CMI equipment.
While seeking acquisitions, Terex, in general, wants to
find businesses that have strong gross margins, high
levels of SG&A, and substantial working capital.
Furthermore, we look to find businesses where there are
substantial synergies which will allow us to be
financially accretive to earnings within the first year
of ownership. CMI fits this criteria, and is right down
the middle of the fairway. Gross margins at CMI are
typically in the range of about 24 percent. SG&A is 18
to 20 percent of revenue. And, net working capital
around $100 million. Operating performance has
historically ranged from a break-even level to $17
million of EBITDA. Recently, the company suffered from
a management change that added substantial cost and
inventory, that they have been working through.
Fil Filipov, Terex Executive Vice President, will
assume responsibility for this business as President of
CMI, following the close of this transaction. We will
keep this business separate from the balance of Terex
operations, initially, in order to focus on the
operational and cultural opportunities. CMI has already
started lean manufacturing, a process that we will
build upon. We expect to achieve at least $20 million
of annualized savings. We believe 70 percent of these
savings will be realized in 2002, and the full savings
in 2003. Longer term, of course, we will integrate CMI
with the balance of our operations. We would expect
that to be, probably, in the year 2003.
In summary, CMI is an excellent strategic fit with
Terex. Our position in infrastructure products, with
Cedarapids, Powerscreen, and now, CMI, will be
superior, in our view, to any competitor. This results
in real franchise value for Terex. Furthermore, this
transaction, as structured, will be credit enhancing,
which we feel is appropriate, and consistent with our
longer-term goals of improving the company's financial
structure. The bottom line here is that we're building
a better Terex, a broader Terex, with some great
products and a great operating history from CMI. We
think this is an excellent marriage, a marriage that we
can build upon with the balance of our operations. With
that, I'd now like to open this up for questions, and
operator, could you do that.
OPERATOR: Yes, sir. At this time, we are ready to begin
the formal question/answer session. If you have any
questions, just press *1 on your touch-tone phone, and
you will be announced prior to asking your question. If
you want to withdraw your question, press *2. Once
again, to ask a question, press *1. And our first
question comes from David Raso from Salomon Smith
Barney.
D. RASO: Hi. Good morning everybody.
R. DEFEO: Morning, David.
D. RASO: Quick question on the second half outlook. The
comments about the second half should be similar to the
second half, so, roughly 95 cents to a dollar. A lot of
the products you sell the second quarter, the big
spring selling season. The second half of the year,
that outlook how much of that is predicated on some of
the mining orders coming through that right now are
still, maybe, a bit more in the bid mode. And, if you
can highlight the crushing business, I'm a little
surprised that that's slow at Cedarapids. If you could
give me a little more color there, I'd definitely
appreciate it.
R. DEFEO: Okay, just as a, in a general sense, as I indicated,
we'll have to secure some mining orders to make the
second half be similar to the first half. That will
help offset, which is somewhat a seasonally slower
period, the second half versus the first half. We think
that'll happen. That's our view today. And, we think
that's what we're certainly operating toward. The
crushing side of our business, or the weakness at
Cedarapids, really reflects some uncertainty in the
market on the part of our distribution and a lack of
willingness to commit to new orders at this point in
time. I don't believe there is a fundamental softness
in the activity relative to aggregates products. I do
believe this is an inventory-related issue that is
being worked through, and it will take a couple of
quarters, the second quarter being one of the quarters.
And typically, the fourth quarter is one of the
stronger quarters in this business, as people buy
crushing and screening products or as we ship them into
the distribution.
D. RASO: Following up on the inventory comment, articulated dump
truck and the construction truck, how would you
describe the weakness there? Is that inventory related,
demand related?
R. DEFEO: I would say it's demand related in the articulated truck
product category. Although, frankly, we're having a
better second quarter in that than we did in the first
quarter by a fairly substantial amount. And, we're
still seeing some pretty good business among some large
customers.
D. RASO: And then, lastly, in the CMI acquisition, is there a
dilution amount for that deal built into the guidance
in the second half?
R. DEFEO: The dilution for CMI in the fourth quarter will be
somewhere in the range of 5 cents. Okay, so it's just
not that significant.
D. RASO: I'll get back in the queue. Thank you.
OPERATOR: Our next question comes from Gary McManus from JP Morgan.
G. MCMANUS: Hi Ron.
R. DEFEO: Hi Gary.
G.MCMANUS: Can you talk about what kind of orders have you seen
thus far in the surface mining area? And, what kind of
numbers would you anticipate in the second half of the
year, that's built into this earnings guidance?
R. DEFEO: We have, as you well know, the mining business is very
challenging to forecast at any one point in time,
because it's a lumpy business. We believe that there
are several significant orders that we're working on,
particularly in the Unit Rig area, that we're not
counting on all of them to come our way. But,
certainly, we believe several of them will come our
way. And, we have seen some improvement, clearly, in
our O&K shovel business. So, you know, while it may
appear that, it's difficult to give you a precise
number built in, I think we have enough confidence that
the activity there will result in a decent second half.
Ernie, you want to add to that?
E. VEREBELYI: I would just comment that, based on historical hit
rates and the number of prospects that are currently
underway, in terms of tender proposal, that we have a
high likelihood, and good probability of meeting what
we've laid out for the last half of the year. It's an
uneasy situation, from some of the standpoints of the
mines, again, as Ron pointed out. Right now, coal seems
to be holding up well. There's activity there. But,
it's very hard to predict, relative to general economic
environment. I would also say that the shovel business
has been a little stronger than we anticipated, and
that the truck business has been delayed a little
longer than we had anticipated. And, that's been a good
part of the impact on the second quarter at Unit Rig,
that Ron mentioned earlier.
G. MCMANUS: Given, I assume there's long lead times in a lot of
these orders. Are you assuming a lot of earnings impact
in the second half, from what you anticipate in terms
or orders, or a lot of revenue in earnings impact will
come in 2002.
R. DEFEO: Well, if our second half will be similar to the first
half, there's not a lot of additional that will happen,
Gary, to make those numbers come to pass. There'll be
some erosion, obviously, from some of our more
seasonally, second quarter oriented businesses, like
the lifting business. But, I think that can be made up
here.
G. MCMANUS: Second question is, the net debt of CMI continues at
75.25 million at closing. What was the net deposition
of CMI at the end of the first quarter? And, I assume
that's built in, so they don't lever, I mean, I'm just
wondering.
R. DEFEO: The net debt, as public, the publicly reported net debt
at CMI was $94 million.
G. MCMANUS: Okay, so if it, it had to be at least $75 million. Just
explain that again to me.
R. DEFEO: Okay. The assumption is that they will achieve a $75.25
million of net debt. Any amount above that, there will
be an adjustment, and there'll be fewer shares of Terex
stock issued.
G. MCMANUS: Now, if it's lower?
R. DEFEO: No difference if it's lower. There will not be any more
than 3.5 million shares of Terex stock issued. But,
there can be fewer shares.
G. MCMANUS: Got it. Okay, now, I understand the credit enhancing,
but it looks like you had enough cash on hand, at least
your cash position at the end of the first quarter, to
do this on a cash transaction. I'm wondering, that
would, presumably, be a lower cost way of making this
acquisition.
R. DEFEO: Well, I think, you know, from our standpoint, we want
to continue to work on improving the financial
structure of Terex, and this makes good sense for both
CMI shareholders, as well as Terex shareholders, in
that we think there's a lot of savings potential and
synergy potential here. And, consequently, we feel it's
attractive. It also keeps us in a position where that
cash and/or liquidity of Terex can be held for use for
other things.
G. MCMANUS: One last thing, question, then I'll get back to you.
Just, what's your anticipation or your expectations for
cash flow performance this year with a little bit lower
earnings? Do you have, have you changed, depreciation,
or cap back, let's say, from working capital, or
anything on those lines?
R. DEFEO: CAPEX hasn't changed. Working capital, in the short term,
we're seeing some use of working capital. But, we
expect to run that off in the second half of the year,
and we've adjusted our schedules and our plans
accordingly.
G. MCMANUS: You expect cash flow in neutral, positive, negative,
for a full year 01?
R. DEFEO: Probably, what Joe, positive.
J. APUZZO: We'll be cash flow positive.
G. MCMANUS: Okay. Thanks.
OPERATOR: Our next question is from Sara Thompson from Lehman
Brothers.
S. THOMPSON: Yes. This is actually a follow up on that same line. I'm
sorry. You're going to be cash flow positive, just from
working capital, for the year?
J. APUZZO: For the year. That is our plan, yes.
S. THOMPSON: And, the inventory build, is that just the same kind of
seasonal issue, or are you guys running into problems
with lower demand than you've got actual excess
inventory sitting in your books right now?
R. DEFEO: If you have less sales, you end up with more inventory.
And, so, that's the result of the current situation.
But, that's why we've made some adjustments, Sara.
S. THOMPSON: Okay, but my question for would be, it's the demand based
issues of you guys are then going to run out your
inventory in the second half of the year, are we going
to, should we expect to see some pressure on margins
from that?
R. DEFEO: No.
S. THOMPSON: Because?
R. DEFEO: The way we're structured, Sara.
S. THOMPSON: Okay, just because it's pure assembly and, so, there's not
that much overhead.
R. DEFEO: Well, nothing is ever pure anything, but we're mostly
assembly. And, as you know, 80 to 85 percent of our
costs are variablized.
S. THOMPSON: Right. Okay. Fair enough. That's the only question I had
left. Thank you.
R. DEFEO: Okay.
OPERATOR: We now have a question from John McGinty from First Boston.
J. MCGINTY: Good morning, Ron.
R. DEFEO: Good morning, John.
J. MCGINTY: Let me just get a couple of clarifications, if I can. If
we take your very specific guidance about 95 cents to a
dollar in the first half and the second half, you know,
equaling that, is that including, or not including, the
5 cent dilution that you were talking about in the
fourth quarter from CMI?
R. DEFEO: It's not including the 5-cent.
J. MCGINTY: Not including. So, we take, wherever we end up, we take
5 cents out on that. Okay. Second question. Can you,
just a clarification, the number that I had in my model
from my conversations, were that you hoped to generate
something in the neighborhood of $50 million in working
capital, a positive cash flow from working capital in
01. Are you now saying you will generate positive cash
flow, but less than that? Or is that still a good
number. I'm sorry, I just got confused when you were
talking before.
R. DEFEO: Well, it's going to have to happen in the latter part of
the year, as opposed to the earlier part of the year.
But, it's still a good number.
J. MCGINTY: Okay. Now, could you give us, Joe, you haven't been
working hard enough here. Joe, could you give us, could
you kind of, you know, you talk about a bunch of stuff,
Ron, when you were talking about infrastructure weak,
Terex trucks weak, talking about the revenues. I mean,
those were the kinds of things you're facing overall.
But, when we come back to your comment to the press
release, you talk about earnings being 50 to 55 cents
versus a consensus of, I think, 65 cents. And you talk,
you know, the first thing you mention is the
Euro/Dollar/Pound, and then, orders. Can you break down
that 10 to 15 cents, at least in ballpark terms, as to
the pieces? In other words, how much of it's currency
versus, you know, construction? Just give us some
flavor of it.
J. APUZZO: The currency impact is about 3 cents, and the remainder
is about equally split.
J. MCGINTY: Between?
J. APUZZO: Between the two segments that have been discussed here.
J. MCGINTY: The mining and...
J. APUZZO: Yes. Just, you know, round numbers.
J. MCGINTY: But, Ron actually didn't discuss lifting.
R. DEFEO: No. We were trying not to discuss lifting and earthmoving
anymore. We're trying to focus on the product areas we
have, John.
J. APUZZO: I mean the two product areas, I should say.
J. MCGINTY: Which were mining and?
R. DEFEO: And North American construction business.
J. MCGINTY North American construction. Okay. I'm sorry, I was
just trying to make sure I understood that. So, 3
cents, and then the other. So, in other words, lifting,
even though we're not talking about it anymore, in
Europe, other than currency, were not issues in the
quarter.
J. APUZZO: Right.
J. MCGINTY: Okay. And, then, again, a clarification. Back on the
several big orders for Unit Rig that are out there, not
all of which you'll land, you talked about, clearly,
success rate and so on. But, at least, are all of those
Unit Rig orders that are kind of on the board, kind of
hope we get this sort of thing, and probabilistically,
is that all coal, or is there some other minerals in
there?
E. VEREBELYI: That's a variety of products. We have everything from
diamond mines, to copper, to iron ore, to coal, in that
mix.
J. MCGINTY: What percentage, in ballpark terms, would be coal? Half?
Of the stuff that's out that's pending.
E. VEREBELYI: Probably even a little more than that - maybe 60 percent.
If you, I'm just pulling that off the top of my head,
without any real analysis. But, that's probably a
reasonable estimate.
J. MCGINTY: Okay. A couple questions about CMI. Just one clarification.
Is CMI, I'm sorry, is Cedarapids all distributors, so
in essence, you can put whatever CMI products you want
into those distributors, and continue to sell the rest
direct, without any kind of conflict. I mean, you don't
have parallel distribution systems.
R. DEFEO: Well, we don't have parallel distribution systems. That's,
I mean, I guess you're right in your commentary about
where we stand today. CMI is principally a direct, but
not exclusively, they do sell some products through
distributors. And, Cedarapids is principally a
distribution-oriented company. There's some
compatibility of products. There's some duplication of
products. But, more than anything, there's some real
new products that can be added to both enterprises.
Okay?
J. MCGINTY: Right.
R. DEFEO: Our first priority will be operating performance, making
it, making it efficient efficiently, improving the
factory in Oklahoma City, which is 75 percent of the
revenue comes out of Oklahoma City. That's our first
priority. And, an equal priority with CMI will be to
solidify the relationships we have with the direct
customers, which we strongly value, that CMI has
developed over the years. So, we want to make sure
those customers that have relied upon CMI for their
products and their services and their support, feel
that they're going to get great treatment from Terex.
Down the road, I'm sure there are opportunities to
complement both the Cedarapids product, as well as the
CMI product, from a variety of places. I think CMI has
a terrific asphalt plant. I think there's a new product
that they're bringing in from Brazil, with a small
acquisition they made in Brazil, that could be sold in
the United States. So, I think there's a lot of
opportunities, John.
J. MCGINTY: Okay. And, can I just make sure I understand the numbers?
The fourth quarter dilution of 5 cents, is that an
ongoing number? In other words, because the offset, if
you get $20 million of savings, if you get 70 percent
of the $20 million of savings at a 30 percent tax rate,
that adds 30 cents next year, with 20 cents, if it's 5
cents a quarter, 5 cents a quarter of dilution, I mean,
that adds 15 cents a share, 15, 20 cents a share, just
from the cost savings. But, then, the question I have
is if that's right; and, then the question I have is
what kind of synergies would you get on top of that? In
other words, if we were trying to do our model, to look
at the impact of CMI, we get the cost savings minus the
5 cents a quarter of dilution you talked about. Should
we also factor in some synergies in 02, or should we
wait for 03 for that?
R. DEFEO: I think it'll be accretive in 02, for sure.
J. MCGINTY: It's accretive, just on the cost savings.
R. DEFEO: Well, no. Cost savings will be a driver of it, but we
expect the net of everything to be additive to
earnings. It's probably in the 10 to 15 cent range.
J. MCGINTY: Okay. Very good. Thanks very much.
OPERATOR: We have a question now from Tom Klamka from Credit
Suisse First Boston.
T. KLAMKA: Good morning.
R. DEFEO: Good morning, Tom.
T. KLAMKA: On CMI, if you look back in 2000, it looks like they were
basically break even. First quarter was right around
break even. And, given what you paid for it all in, in
using your $20 million number, I guess I don't get the
credit enhancing. On a debt basis, it still looks like
it's, you know, high threes kind of leverage. Can you
talk a little bit more about, I guess, first of all,
what have been the problems that CMI, especially on the
revenue side. And, then, when you get to talk about $20
million of cost savings, how do you go about getting
there?
R. DEFEO: Okay. Several questions, Tom, built in. Let me see if
I can break them down. First, we expect the ongoing
performance of CMI to be in the range of $15 million of
EBITDA, okay, today, as it exists, given our due
diligence, and given our dissection of the year 2000
performance, and separating what were somewhat in the
range of $11.9 million nonrecurring charges in the year
2000, and having a full due diligence review of
everything. This is a company that had unnecessary
consulting charges and a whole bunch of excess costs in
the year 2000. So, if you start form the basis that we
think this business will do about $15 million of
EBITDA.
T. KLAMKA: And that's, I'm sorry, Ron, and that's even with a
break even first quarter? I guess when you cut through
the numbers, you think their run rate today is $15
million?
R. DEFEO: Yes.
T. KLAMKA: Okay.
R. DEFEO: We think their operating at about $15 million of EBITDA
right now, okay. Now, their expectations would probably
be closer to $25 million of EBITDA for this year, but
we're not really commenting on their expectations.
We've taken a pretty hard look at it, and feel that
they're at about the $15 million level. If you add, of
course, the $20 million of savings, that gives you a
$35 million EBITDA level. So, call it $30 to 35
million. I think you can now see that what we mean when
we say we feel this thing will be credit enhancing.
Okay?
Now, you asked the question, well what are the issues
at CMI and/or what are the opportunities? Again, the
company has good gross margins, generally speaking,
that have ranged from, you know, 20 percent to 25
percent over the course of the past several years. So,
they sell at decent prices. They have high SG&A levels,
somewhere around 20 percent, at least relative to
Terex. Some of those costs are public company costs,
and those public company costs, of course, will come
out right away. They're in the range of, probably, $3
to $5 million, just public, excess public company
costs, and the way they've run their company. So, as we
look at the enterprise, you know, what we're going to
focus on is making the factory work more efficiently.
And, I think that's something that our company knows
how to do.
Because of the nature of CMI, which is the fact that it
has been a very specialized selling company, a company
that's sold a lot of products direct, we think there's
some improvements in lean manufacturing that they've
started that we can build upon and get some of those
savings right away. Also, component costs. They're
obviously buying things. And, you know, a $200 million
company, $225 million company, doesn't have the buying
power that a $2 billion company does. So, we feel we'll
buy things for less.
T. KLAMKA: But the issue appears to be, not at the gross margin,
on the manufacturing side, it's more SG&A, correct? I
mean, if they're doing 19 percent gross margins. I
mean, is the SG&A at that level because of their method
of selling?
R. DEFEO: Well, it's partially at that level because of their
method of selling. It's also, partially, in our view,
higher than it should be. Okay? So, we think we can
lower that pretty significantly, without impacting the
level of service and the sales support they have in the
marketplace.
T. KLAMKA: Could you talk quickly about the top line? Q1 looks like
it got whacked pretty good. What's the revenue outlook
for these guys?
R. DEFEO: I think their revenue outlook is probably in the range
of $200 million or $215 million, somewhere in that
range, $200 to $215.
T. KLAMKA: Okay. And, then, as far as this debt being assumed, I
guess it's mainly bank debt. What's actually going to
happen there? Is that going to be refinanced on your
lines? Is it going to be, is it going to stay at CMI,
with existing lenders? What happens there?
R. DEFEO: I think it'll probably be refinanced under our lines.
T. KLAMKA: Okay. Great. Thank you.
R. DEFEO: Okay, Tom.
OPERATOR: Our next question is from Todd Hinrichs from ABN AMRO.
T. HINRICHS: Thank you. One of my questions has been answered, but,
first of all, by what quarter do you expect to become,
the CMI acquisition to become accretive, next year.
R. DEFEO: First quarter of 2002.
T. HINRICHS: So, it's a pretty aggressive, you only have one quarter of
dilution, then, well, maybe one and a half.
R. DEFEO: Yes. I mean, we'll close probably by, in September some
time. Some time in September is our view. No, we plan
to get at the issues right away.
T. HINRICHS: Great.
R. DEFEO: As we have in the past, I might add.
T. HINRICHS: Okay. Great. Where, now the $20 million of savings that
you're talking about, where is that coming from? I know
you've mentioned a few things, but if you could kind of
break that up, and I apologize, I had to get in, I had
to leave the call for a moment. I doubt that you've
touched on it.
R. DEFEO: That's okay. No, I haven't. But, 70 percent, we said
would come in the year 2002. Okay, which is $14
million, approximately. I indicated that we think
there's $3 to $5 million of excess public company costs
within the company. Obviously, those happen right away.
And, we think there's some manufacturing efficiency
savings that'll happen pretty quickly, which we think,
after about 100 days, because we implement our 100 day
plan, we believe we can realize those savings following
the 100 day plan and thereafter you have some
efficiencies in SG&A which will accrue to the company.
T. HINRICHS: Then, also listening to some of the comments, essentially
what are we coming to, maybe a $30 to $35 million run
rate in EBITDA for this company that, for CMI, that
might occur by next year. Is that correct?
R. DEFEO: Yes. By the end of, we think we'll be at that rate by the
latter part of 2002.
T. HINRICHS: So, essentially, you, with everything all told, you're
buying this company for about 4.3 times EBITDA.
R. DEFEO: Yes. The way I think about it is, I want to make sure,
when I buy a company I can do it for less than five
times.
T. HINRICHS: Great. Okay. That's all I have.
OPERATOR: Our next question comes from Mike Kender from Salomon Smith
Barney.
R. DEFEO: Hello Mike.
M. KENDER: Yes. Hi. Just a couple questions. One is, in terms of the
cost savings, the $20 million, what are you going to
have to do in terms of CAPEX to realize those rather up
front costs?
R. DEFEO: No significant CAPEX, and they'll be some redundancy costs,
where some jobs may be eliminated, but I don't think
that'll be material.
M. KENDER: Okay. And, just following on to Tom's question with the
debt assumption, would you, are you just going to pay
that down with the cash in the balance sheet, or should
we expect the cash to stay as is?
R. DEFEO: Joe.
J. APUZZO: I think we'll, right now the plan is to pay it off with
the cash on the balance sheet. But, we'll assess the
various options as we go forward and what alternative
uses we may have in mind for our capital.
M. KENDER: And, then, the last question I had was you threw out the
2000 for the second quarter guidance in EPS terms. Joe,
can you give us an official EBITDA translation for
that?
J. APUZZO: That translates into EBITDA of low 200s basically,
depending...
R. DEFEO: For the year.
J. APUZZO: Yes. For the year.
M. KENDER: Great. Thank you very much.
OPERATOR: We now have a question from Chuck Laporta from Standard
Asset Management.
C. LAPORTA: Hi. I just want to touch back on the second half again,
particularly the mining business. If you guys are, you
know, depending on a bounce in the mining business. I'm
trying to cut it a different way. If you could, could
you tell us what that aggregate dollar amount of the
jobs you have out for bid that could possibly hit the
second half, of the jobs that you have bid on that
could hit in the second half?
R. DEFEO: Chuck, that's a hard question to ask, because, to answer,
rather, easy to ask, hard to answer, because, the
number is hard to be meaningful. Because sometimes, you
know, they're $40 or $50 million that, some of which
may be for part of this year, some of which may be for
part of next year.
J. APUZZO: And, the answer can be very misleading, so I would hate
to have a number that people just remember. But, it's a
substantial amount of business, Ernie. Would you agree?
E. VEREBELYI: Yes.
C. LAPORTA: Thank you.
R. DEFEO: Okay. Sorry to be so elusive, but I, you know, it's a lot
of business.
E. VEREBELYI: I guess, just a short comment to that one. One of the
reasons that that's difficult, even during the tender
period, the volumes on the requirements will change.
Certain people will come to that point and then decide
not to proceed. Others will come on and move very
quickly based on their board's approving expenditures,
or in the case of coal, for example, deciding that the
price points are such, that they want to up their
production rates. Those are all in play constantly.
But, as we look at a point in time, we have sufficient
activities and volumes that, based on historical hit
rates, will get us to those kind of numbers
comfortably.
C. LAPORTA: Well, let me ask you this. After you've been awarded a
job, how quickly can you turn that into revenue?
R. DEFEO: Within 60 to 90 days.
J. APUZZO: 60 to 90 days is quite typical, assuming the customer
wants it in that timeframe, for our response. We
actually start recognizing revenues and the profit.
R. DEFEO: One other thing I would say, just as an example of this
environment we're in. There was a fairly large order we
were bidding on, coal related, and it was actually a
remarkably large number. And, the company that owned
the coalmine, given the fact that coal prices went up
so rapidly, instead of ordering equipment, decided to
sell the coal mine. It's a true story. And, then, we
expect down the road, they'll need equipment again,
but, you know, sometimes good news can get too good.
Okay.
OPERATOR: We now have a question from Jeff Goldman from First
Capital.
J. GOLDMAN: Thank you. Good morning. One question remaining for you.
Regarding the downward adjustment, contingent on CMI's
debt level, can you quantify that further?
J. APUZZO: I'm sorry that's hard to understand.
J. GOLDMAN: Well, are there parameters for adjustment given different
levels of CMI debt, i.e., between 90 and 100 million,
we would only receive .14 shares?
R. DEFEO: Okay, yes, we'll answer that question.
B. HENRY: That's right. Approximately, 50 cents of every dollar
of debt will come off of the equity value going to the
CMI shareholders.
J. GOLDMAN: Okay. Great. So, I can just do the math on that. Thank
you very much gentlemen.
R. DEFEO: Okay.
OPERATOR: And now our next question is from Randy Saluck from
Tyndall Management.
R. SALUCK: Hi. How are you?
R. DEFEO: All right Randy.
R. SALUCK: I just wanted to ask about the significance of the
Canadian oil sands for your mining business, if you're
participating in that development with your trucks or
your shovels, and what you can expect in the future.
R. DEFEO: Ernie will answer that.
E. VEREBELYI: Well the answer is, yes we are. We have four of our large
RH400 type of hydraulic shovels in place. They've been
operating up there for several years. We have some
dialogue going with them on the truck side of the
business. And, in fact, I don't anticipate impact for
this year, but we are in some early discussions about
perhaps some additional product for 2002 and 2003. So,
that business is going well for them and, in turn,
they're very satisfied with our support and the
product's performance up in that environment.
OPERATOR: We now have a question from David Raso from Salomon
Smith Barney.
D. RASO: Just a quick follow up. On the mining, the orders that
maybe are going to come through in the second quarter,
that you hope maybe will come through in the second
half, the truck themselves, is it the MT5500s, the
4400s, can you give us a feel for the size of the
trucks that you're talking about, or is it completely
broad-based? And, also, a quick update on Fermac, how
that's going and do we have a Fermac product coming
into the States now, and at what kind of flow rate?
J. APUZZO: The bulk of those orders are really in the MT4400 size,
which is a workhorse in the industry, and probably from
a value and use standpoint, the best performer out
there. There is some interest in the larger truck,
which is, you know, in early stages of development.
But, very few, actually, very few numbers at this
point, as it's being qualified. And, there is also a
lot of interest in the 3300, the new AC 150 ton
product, we're seeing interest, not only in the mining
segment, but the quarrying segment. And, we have a
number of tenders out on that. So, those are, I guess,
the MT4400 and the new 150 ton AC drive are the primary
areas where we have interest in tenders pending.
R. DEFEO: And expectations. And, with regard to Fermac, we're not
banking on a lot of U.S. based loader backhoe business
this year. We think that's a longer-term opportunity
for us. We are seeing Fermac contribute positively to
both revenue and profits already. And, you know, we
expect that situation to only improve.
D. RASO: Thank you.
R. DEFEO: Okay, David.
OPERATOR: Our question is from John McGinty from First Boston.
J. MCGINTY: Yes. Ron, let me just come back to a little bit of a
broader question, here, which is if you look at Terex
overall, if you look at the lifting business, they are
very few businesses, maybe an all-terrain truck or
something like that that you don't have to really
complete the business. But, if you look at mining, it's
pretty straightforward. You've got, maybe,
three-quarters of a mining business with an obvious
hole, which you could or couldn't fill. When we get
into the road building aggregates quarrying business,
now you've got Powerscreen, you've got Cedarapids,
you've got CMI. Could you give us some kind of a sense
in your mind as to, are you half way done building a
business, three-quarters done, a quarter of the way? I
mean, as you look at that business out there, are there
major pieces that fit, that you get the synergies, that
you get the savings, as you look at the business, where
does that kind of fit in your sense of that business?
R. DEFEO: Sure. In the road building infrastructure business, I
think we're probably three-quarters of the way to where
we would like to be in terms of full product line. I
think CMI really brings with it a history of innovation
and a history of some unique products, which will make
a big difference for us. But, we still don't have a
compaction brand, for example, other than our Benford
product line, which has a good market share in the
United Kingdom, but not that good a market share
everywhere else. And, I'm sure there are some other
compatible products that could be added. But, frankly,
though, if you looked at, I don't care who you look at,
Caterpillar, Komatsu, Volvo, Astec, I think our product
line is broader and more capable of lowering the cost
of a road paver than anybody else's product line. And,
we just are in the process and will put them all
together.
J. MCGINTY: Now, more on the quarrying side? Crushers, screeners,
that kind of stuff.
R. DEFEO: I think we're getting there on that product, on those
product lines as well.
E. VEREBELYI: I think we're pretty well positioned there. We've got,
we're in the bulk of the requirements. The acquisition
of Jaques gave us some additional capabilities on the
larger end. I would say we still, maybe, would look at
something in the large cone crushing product category.
But, by and large, we're in pretty good shape there as
well.
J. MCGINTY: Okay. Thanks very much.
R. DEFEO: Let's take a couple more questions operator.
OPERATOR: Yes, sir. All right, I have two more sir. We have Dennis
Dowden from Muzinich & Company.
D. DOWDEN: Hi guys. I just wanted to make sure I got a clear
picture of your liquidity right now. What are your cash
balances at this point?
J. APUZZO: We're not going to comment on cash balances at an interim
point in time. We'll get more specific numbers when we
announce the quarter. It's not, I don't think, the
purpose of this call. I think we've indicated we've
gone through some working capital increases here. And,
we'll see negative cash flow from operations in the
second quarter. We expect to see that reversed in the
third quarter, and the fourth quarter, or second half
of the year, and, consistent with the underlying
performance of the business.
R. DEFEO: And, we have very significant liquidity, anyway.
D. DOWDEN: All right. You had nothing drawn on the credit agreement,
right?
E. VEREBELYI: No.
D. DOWDEN: Okay. Speaking of the credit agreement, should you need
to draw down any money from the credit agreement, with,
you know, the business and the outlook for the
business, are there any covenants in the credit
agreement that you're getting kind of tight on, even
though there's nothing drawn down on it?
E. VEREBELYI: No.
R. DEFEO: No.
D. DOWDEN: Okay. Thank you.
OPERATOR: And our last question comes from Todd Hinrichs from
ABN AMRO.
T. HINRICHS: Thank you. Early in the call, you mentioned that about 60
percent of your mining revenue is coming from coal.
And, obviously the coal market is doing really, really,
really well, while the rest of the, maybe, the metals
markets are doing very, very poorly. On a typical year,
if there is such a thing, going back in time, how much
of your mining related revenue would be related to coal
versus how much would be related to metals and other or
aggregates?
E. VEREBELYI: I don't know if you can average that. Because, if you go
back a couple of years with coal, it was probably
closer to zero, whereas this year, it's going to be
more than maybe half. It varies as those commodity
price points change. But, maybe 30 percent or 40
percent, if you wanted to try to average it over a
longer timeline. I think one of the things you see is
the volatility of those commodities at different points
in time. Coal, petroleum based products out of the tar
sands, coal, copper.
R. DEFEO: They impact equipment.
E. VEREBELYI: And those impact the individual mining areas that we
serve. I guess if I was able to predict that, I'd be in
a different business.
T. HINRICHS: Great. Thanks.
R. DEFEO: Well, I want to thank everybody for their interest in
Terex, and we look forward to giving you the next
update on our second quarter report.
OPERATOR: And that concludes today's conference call. All
participants, you may now disconnect.
###
Terex Corporation ("Terex") intends to file a registration statement
with the SEC on Form S-4 in connection with the merger of Terex and CMI
Corporation ("CMI") and Terex and CMI expect to mail a proxy
statement/prospectus to CMI's shareholders containing information about the
merger. Investors and security holders are urged to read the registration
statement and the proxy statement/prospectus carefully when they are
available.
The registration statement and the proxy statement/prospectus will
contain important information about Terex, CMI, the merger, and related
matters. Investors and security holders will be able to obtain free copies
of these documents, when available, through the web site maintained by the
SEC at http://www.sec.gov. In addition to the registration statement and
the proxy statement/prospectus, Terex and CMI file annual, quarterly, and
special reports, proxy statements, and other information with the SEC. You
may read and copy any reports, statements, and other information filed by
Terex and CMI at the SEC public reference rooms at 450 Fifth Street, NW,
Washington, D.C. 20549 or at the SEC's other public reference rooms in New
York, New York and Chicago, Illinois. Please call the SEC at 800-SEC-0330
for further information on public reference rooms. Terex's and CMI's
filings with the SEC are also available to the public from commercial
document-retrieval services and the web site maintained by the SEC at
http://www.sec.gov.
Information regarding the identity of the persons who may, under SEC
rules, be deemed to be participants in the solicitation of shareholders of
CMI in connection with the merger, and their interests in the solicitation,
will be set forth in the proxy statement/prospectus.
The above contains forward-looking information based on Terex's
current expectations. Because forward-looking statements involve risks and
uncertainties, actual results could differ materially. Such risks and
uncertainties, many of which are beyond Terex's control, include, among
others, the sensitivity of construction and mining activity to interest
rates, government spending, downward economic cycles and general economic
conditions; the success of the integration of acquired businesses; the
retention of key management; foreign currency fluctuations; pricing,
product initiatives, and other actions taken by competitors; the ability of
suppliers to timely provide parts and components on a cost competitive
basis, and the ability of Terex to timely manufacture and deliver cost
competitive products to customers; the effect of changes in laws and
regulations, including environmental laws and regulations; the continuing
use of net operating loss carryovers; the effect of debt and restrictive
covenants; and other factors, risks and uncertainties more specifically set
forth in Terex's public filings with the SEC. The forward-looking
statements herein speak only as of the date of this filing. Terex
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statement included in this
filing to reflect any changes in Terex's expectations with regard thereto
or any changes in events, conditions, or circumstances on which any such
statement is based.